The New Face of Luxury

With high-line brands launching sport utes and crossovers and the automobile mainstream moving up with spiffier output, the deluxe market is getting more crowded and hard to define

Even as a new Cold War looms, the old compound on the outskirts of Leipzig, Germany is a reminder of the once-ominous divide between East and West. The sprawling old Russian military base, part of the former German Democratic Republic, had housed some fearsome weapons before being abandoned following the collapse of the Soviet Union. Today, though, the fortified concrete bunkers, pillboxes and weapons nests have found a new, more peaceful purpose as obstacles in an off-road training course. A procession of new Porsche Macan sport-utility vehicles has been set loose, the drivers veering off onto rutted dirt paths that let them attack the old base the way NATO troops could only have dreamt of in the days when a shooting war seemed a distinct possibility.

Porsche created the course soon after opening its new assembly plant in Leipzig a few years back. It needed to prove to potential buyers that a company known for making some of the world’s most exclusive sports cars could inject a bit of that high-performance DNA into an SUV. It seemed quite a leap at the time but that initial off-roader, the Cayenne, is now the German maker’s single-largest seller. And close behind is the equally controversial Panamera, a four-door sports car that has also been rolling out of the Leipzig plant—which just underwent a $685 million update to handle the anticipated demand for the new Macan.

With Porsche sales numbers setting records in the U.S., China and worldwide just about every quarter since the product blitz began, expansion is not likely not over. “We have six models but should have seven,” CEO Matthias Müller concedes during a casual dinner at the sprawling Porsche center in Leipzig. While he won’t discuss details, insiders suggest a “Baby Panamera” could roll into showrooms within the next several years.

Barely two decades ago, Porsche was dependent upon a single model: the legendary 911. But it’s not alone in launching into a product proliferation the likes of which the luxury car market has never before seen. Take Mercedes-Benz. At this year’s New York International Auto Show, U.S. CEO Steve Cannon revealed the maker will roll out 30 new models before the end of the decade, “about one per quarter.” BMW and Audi have similarly aggressive plans.

While many of these products are updates or subtle tweaks on classic luxury models—like the recently redesigned Mercedes-Benz S-Class sedan and the new S63 AMG 4Matic Coupe unveiled at the show—luxury makers are focusing much of their product development on finding new niches, “white space” in industry lingo, that could give them a competitive leg up by attracting a new generation of buyers. About 80 percent of those purchasing the all-new Mercedes CLA, for example, are new to the brand.

“Premium automotive brands will drive global sales growth by entering new segments,” forecasts a new study by the consultancy IHS Automotive. In the process, the very definition of a luxury car is undergoing a major transformation. Indeed, one probably has to stop using the word, “car,” for the focus is no longer on traditional sedans, coupes, convertibles or sports cars, notes the IHS report, emphasizing, “A massive expansion of sport-utility vehicle and crossover offerings will be the foundation of premium-brand sales growth between now and the end of the decade.”

This product proliferation poses a potentially significant threat for mainstream automotive brands. With a base price of less than $30,000, new models like the Mercedes CLA and Audi A3 are suddenly swimming in waters traditionally populated by marques like Ford, Toyota and Chevrolet. But, “if they can move into our market, why can’t we move up into theirs?” asks Dave Zuchowski, CEO of Hyundai Motor America. Indeed, the Korean carmaker scored a major coup when, in January 2009, a jury of 50 journalists named its first high-line model, the Genesis, the North American Car of the Year. And with an all-new Genesis launching for the 2015 model-year, Hyundai and sibling Korean brand Kia, are hoping to be even more aggressive in the luxury market.

With plenty of new products covering a wider swatch of segments, never mind a batch of new brands, defining a luxury car is ever harder. Now add the fact that even some entry-level, mainstream products are offered with such traditional high-line cues as leather seats, wood trim and high-performance powertrains. So, what is the new definition of a luxury vehicle?

Product Proliferation

While not every high-line maker has announced specific rollout plans, expect to see more than 100 new models from the major brands before decade’s end, and that doesn’t include the offerings to come from such quirky specialty makers as Sweden’s Koenigsegg and Britain’s Trident.

One thing is certain, luxury buyers will be seeing a lot more products that don’t fit traditional niches. The IHS study emphasizes much of the attention will focus on sport-utility vehicles and crossovers. The all-new Porsche Macan is just one example. Mercedes-Benz has been filling every possible niche when it comes to ute-like vehicles, from the long-running, military-derived Geländewagen to the all-new GLA.

Even that most premium of luxury marques, Britain’s Bentley, is getting into the SUV game. It delivered quite a shock when, at the March 2012 Geneva Motor Show, it rolled out the EXP 9F concept. Strong response from potential buyers has convinced the maker to develop a production version that should reach market sometime in 2016. “It will create a completely new segment in the SUV market, hints the brand’s chairman and CEO Wolfgang Schreiber, who also promises the new model will be “the most luxurious and powerful SUV on the market.” It could also become Bentley’s “greenest” model, but more on that to follow.

While some luxury makers are sticking with conventional, truck-like SUVs—the latest Range Rover being the perfect example—most are opting for car-like “crossovers” that are more suited for driving on snow and ice, perhaps the rutted path to a summer cabin, than serious off-road trails. This approach generally translates into a more car-like ride, better performance and improved fuel economy. But it also gives designers more flexibility to break away from the classic, boxy SUV design. The Infiniti FX was the original groundbreaker.

Indeed, design has become more of a way for luxury manufacturers to differentiate their products than at any time in decades. And that has led to some quirky, if intriguing, offerings, such as the two-door, wagon-like Ferrari FF.

While makers are doing more to visually distinguish luxury vehicles, the models coming to market today are likely to have a lot more in common where the typical customer won’t notice—under the skin.
Today’s underlying vehicle platforms—manufacturers prefer the term, “architectures”—are frequently shared across a wide range of products. Take the compact platform developed for the Mercedes CLA. It is also used for the maker’s latest-generation A- and B-Class models, as well as the upcoming GLA.

That same architecture will be shared with Japanese luxury maker Infiniti—which is part of a joint venture between Daimler AG, Nissan Motor Co. and France’s Renault. The Infiniti Q30 Concept shown at last year’s Frankfurt Motor Show will be first to the luxury market, debuting sometime next year, the maker hints. Think of the Q30 as a blend of coupe, hatchback and crossover, suggests designer Alfonso Albaisa, who contends it “defies characterization.”

Until recently, the Japanese maker was content with offering a handful of models but now appears intent on echoing the German product blitz. “We will attack all the modern premium luxury segments,” declared Johan de Nysschen, the former global CEO who was hired away from Audi two years ago and has just left Infiniti for Cadillac.

The upcoming Q30 underscores one of the most significant shifts in the luxury market since Charles Rolls and Henry Royce put a hyphen between their names. Manufacturers have traditionally focused most of their attention on their high-line products, whether a Rolls Phantom, a Mercedes S-Class or a BMW 7-Series, because of the payoff in terms of image and profit margins. Suddenly, however, most luxury makers seem intent on moving down-market.

With the new CLA, a buyer anxious to flash the tri-star logo can get into a Mercedes for just $29,900—though a fully loaded CLA 45 AMG can nudge into mid-$40,000 territory. And along with the new GLA crossover, don’t be surprised to see other entry-lux spin-offs. That’s a huge change in strategy from three decades ago when Mercedes managers bitterly debated the need to add what came to be known as the “Baby Benz,” the forerunner of today’s C-Class line.

While it still requires coming up with a suitable business plan, few luxury makers would dare ignore the so-called “entry luxury” segments today. Cadillac has scored a solid hit with the ATS it launched for 2013—which was quickly named North American Car of the Year. BMW has a variety of models coming in under the traditional base 3-Series, including its first-ever front-wheel-drive offering, the recently unveiled 2-Series Active Tourer. And Audi is drawing solid reviews for its latest A3 remake—which took World Car of the Year honors at the 2014 New York auto show. Significantly, the A3 will be offered with a wide range of body styles and powertrain options reflecting the increasingly splintered luxury market where buyers have come to learn there’s seemingly a unique model for everyone’s tastes and needs.

Most analysts now predict the single fastest-growing segment of the market over the next decade will be compact crossovers. No wonder Lexus has introduced its new NX, Lincoln the MKC. Cadillac is working up its own entry and even Jaguar is expected to launch a production version of the C-X17 Concept, a crossover that would share its architecture with the upcoming XE entry-lux sedan.

“There is no sign that this trend will reverse, especially with models such as the BMW 2-Series Active Tourer introducing the premium brands into segments that 10 or 20 years ago would have been unthinkable,” suggests the IHS luxury study. And that poses potential problems for mainstream brands, adds analyst Joe Phillippi, of AutoTrends Consulting, who could see some of their most affluent customers lured away.

But some of those makers are fighting back. After years of indifference towards its homegrown luxury brand, Ford has begun efforts to revive the Lincoln Motor Co. and recently launched that marque into China—which is expected to surpass the U.S. to become the world’s largest automotive luxury market by decade’s end. In Europe, where Lincoln isn’t available, Ford has added a new line of upscale trim levels, dubbed Vignale, for models such as the Fusion. “Our vision is to create an emotional experience,” said Barb Samardzich, Ford of Europe’s Vice President of Product Development, adding that Vignale models will be “the highest expression of the Ford brand.”

Meanwhile, mainstream makers are starting to co-opt features traditionally reserved for high-line marques—what Ford COO Mark Fields calls “democratizing luxury.” As an example, Ford began offering the high-tech Cross-Traffic Alert system to its Taurus model barely a year after the safety technology was introduced on the then-new BMW 7-Series flagship. Chrysler, meanwhile, is loading up its 2015 remake of the 200 sedan with dozens of high-line luxury and infotainment technologies—as well as wood trim.

But Hyundai has taken things several steps further. It markedly changed its image with the launch of the original Genesis and expects to go further with the 2015 remake, which it is targeting directly at the likes of the Mercedes E-Class and Audi A6. “Genesis is our halo vehicle,” said Hyundai CEO Zuchowski, during an interview in Phoenix following a media drive of the 2015 luxury sedan. “It elevates our brand and says we can compete with the best in the world. And then there’s the even more upscale Equus model that aims for the rarified air occupied by the likes of the S-Class and Audi A8. Zuchowski confides that Hyundai is looking at other luxury niches, though “The space that seems to hold the most potential for us is the BMW 3-Series space.”

Hyundai isn’t the only Korean carmaker rethinking its traditional role as an entry-level brand. Kia is adding the new K900 for 2015, an even more sophisticated version of the Equus. And with former Audi styling chief Peter Schreyer now heading its design department, additional ventures into the luxury market seem a certainty.

Luxury’s New Green

While it can take less cash than a few years ago to get a Mercedes tri-star, BMW spinner or Audi four-ringed logo onto your sedan or crossover, plenty of high-line products out are still out there. Indeed, there is a burgeoning counter-market for limited-edition models, such as the new La Ferrari and McLaren F1, never mind virtual one-offs such as the $3.9 million Lamborghini Veneno. But that’s not the only sort of green luxury makers are looking at these days.

As the Tesla Model S battery-electric vehicle has demonstrated, there’s a growing demand for new, environmentally friendly powertrain technologies—even among those who never really need to think about the price of gas. A fully loaded version of the Tesla Model S will set you back about $110,000. That’s likely to be a fraction of what Bentley will get when it launches a plug-in hybrid version of its upcoming SUV.

BMW, meanwhile, has set a starting price of $135,700 when its all-new i8 plug-in hybrid sports car goes on sale in 2015. The i8 follows this year’s launch of the new i3 city car, a pure battery-electric vehicle, or BEV. In a radical move, BMW has launched the BMW i series, a brand within a brand. The new BMW i cars (BMW i3 and i8) focus exclusively on battery-based technologies.

Intriguingly, the new sub-brand also plans to make extensive use of super-light carbon fiber, a material until recently limited to “ultracars,” such as a McLaren P1. A general rule of thumb is that for every 100 pounds of weight you take out of a vehicle fuel economy jumps about 1 mpg—while range increases on a battery car. Expect to see more luxury cars go on a diet—the latest Range Rover and Range Rover Sport models, for example, have shed over 700 pounds by replacing heavy steel platforms and bodies with aluminum.

Luxury makers are particularly worried about meeting tough new fuel economy and emissions mandates being enacted around the world—the U.S. set to reach an amazing 54.5 mpg by 2025. So, “lightweighting,” is becoming the norm in high-line products. But performance also benefits from reducing mass. Add the latest breakthroughs in turbocharging and direct injection and a growing number of manufacturers are downsizing their engines. Mercedes’ vaunted AMG, for example, is working on turbo sixes, even fours, that may eventually replace its big eight-cylinder engines. Volvo, meanwhile, is set to go to an all-four-cylinder powertrain line-up by decade’s end.

Some of those will be paired with hybrid and plug-in hybrid systems that will be designed to boost performance as much as enhance mileage. Indeed, the new uber-Ferrari flagship, the La Ferrari, as well as the McLaren P1, both use hybrid systems derived from their Formula One programs.

American luxury buyers will also be getting more diesel options. Audi launched three new “oil burners” for the 2014 model-year, with more to come, including the A3 TDI Sportwagen. For those who might think of diesels as slow, noisy and smelly, the latest technology will come as a revelation. The new models are not just quiet and clean, but quick. BMW’s European-only M550d is virtually as fast off the line as the maker’s gas-powered M5. And then there are the new Iceni Magna and Iceni Venturer models from British sports carmaker Trident. Their shared 6.6-liter V-8 turbodiesel engines can launch from 0 to 60 in a mere 3.7 seconds, on the way to a 190 mph top speed. But they’ll also deliver an estimated 57 mpg—and a driving range of 2,000 miles per tank.

And there other changes coming under the hood. Mercedes recently announced that all of its AMG models—save for the SLS supercar and SL roadster—will henceforth come with all-wheel-drive standard. That’s already the case with virtually all Audi products. And the reality is, in much of the country, dealers find it difficult to sell luxury products that don’t drive all four wheels.

Plug-n-Play

There’s still a big difference between the hand-polished wood of a Bentley or Jaguar and the thin veneer found in a Chrysler 200. But, increasingly, technology is becoming the major differentiator between high-line products and mainstream models. The new Mercedes S-Class is a technological tour de force. All told, there are 300 LEDs in the interior alone, 56 in each headlamp and another 25 in each taillight. There are 3-D cameras, radar and night-vision systems that allow the new sedan to virtually drive itself. There’s even a Magic Body Control system that relies on stereo cameras to look for uneven pavement and automatically adjust the car’s air suspension.

But, as BMW learned when it first introduced Cross-Traffic Alert, it doesn’t take long for even mainstream competitors to catch up. As with the consumer electronics world, it often takes just a few lines of new code. “It definitely presents a problem,” says Mike Accavitti, the new CEO of Honda’s top-line Acura brand. “You can’t develop a better mousetrap and expect to keep your lead for two to three years anymore. The half-life of technology is getting shorter and shorter.”

That said, luxury makers will continue to load up features hoping to stay ahead. And Audi may have come up with a novel way to ensure that even last year’s vehicles can remain technologically current. The maker’s new A3 will be the first to lift a page from the computer world, incorporating a number of plug-n-play components, such as the graphics card powering the infotainment display on its center console. Supplier NVIDIA promises to offer owners upgrades when it improves its display technology going forward. Lincoln, meanwhile, recently offered software upgrades for its MyLincolnTouch system. And Audi is one of a number of makers which are adding 4G LTE to their vehicles. The technology will not only provide passengers rolling Wi-Fi hotspots but eventually might also allow carmakers to remotely upgrade software rather than requiring an owner to go to the dealer, for one thing.

There was a time, not that long ago, when motorists had a limited choice of luxury brands, and a distinct—if narrow—list of products and body styles. It was easy to recognize a luxury car by its badge and by the conventional features, like wood and leather, that set such products apart from their mainstream rivals. But the very definition of luxury is undergoing a massive transformation. And, for the most part, that’s going to be good news for upscale buyers.

Paul A. Eisenstein is a publisher of the website The DetroitBureau.com.